NMPF rebuts IDFA on dairy policy ‘falsehoods’

Statement by National Milk Producers Federation

Upon the release of an economic modeling analysis of the Dairy Security Act (DSA) by leading agricultural economists, the National Milk Producers Federation (NMPF) and the International Dairy Foods Association (IDFA) both offered their perspectives on the report’s finding. However, the IDFA statement is filled with misrepresentations, falsehoods, and distortions that need to be challenged. Here are some of them:

Fact: The report does not indicate that either option, DSA or Goodlatte-Scott (G-S), is “bad” – it says both have some ability to provide catastrophic risk protection for farmers. That’s hardly surprising since G-S is “DSA-lite.” It takes half of the NMPF plan – margin insurance – but omits the critically important market stabilization component that is necessary to speed farm milk price recovery and protect taxpayers from excessive program cost in very low margin situation.

The key to remember is that an inadequate safety net will force farmers (and taxpayers) to bear the brunt of bad policy. How? Because all of the risk of marketing milk, a perishable commodity, will remain with the farmer, without any adequate private or public sector risk management tools to prevent against the periodic downturns that always affect dairy farmers. This perilous risk exposure will continue in the future, if Congress passes a farm bill with the weaker insurance protections offered by the Goodlatte-Scott approach. By the same token, without the Dairy Market Stabilization Program (DMSP) in the DSA, the potential for prolonged low-margin conditions, and high insurance payouts from the government, is enhanced.

IDFA Falsehood: “The study confirms what the Congressional Research Service has reported – the Dairy Security Act will raise milk prices and force consumers to pay more for dairy products.”

Fact: The analysis did not examine retail price impacts. As a safety net that only activates during low margin cycles, the DSA is not designed to boost retail prices under normal market conditions. It merely keeps farm-level prices from being too low, too long, the kinds of situations that result in much greater swings in price that hurt consumers as well as farmers.

The question of consumer price impacts was addressed in an analysis of the Dairy Security Act presented to Congress on April 26, 2012. In testimony to the House Agriculture Committee (p. 10), Dr. Scott Brown of the University of Missouri said that farm-level milk prices will rise only ½ of one cent per gallon because of the DSA, an effect dwarfed by the monthly price volatility already experienced by farmers.

IDFA Falsehood: “Contrary to claims by the National Milk Producers Federation, the new study specifically states that it does not address the impacts of the DSA on the growth of milk supply, dairy exports, and liquidity of private dairy risk markets.”

Fact: NMPF’s release never mentioned nor asserted that the study examines the impact of the DSA on exports or the liquidity of dairy markets. However, it’s worth pointing out that NMPF is concerned with maintaining the U.S. role as an exporter, which is why the DSA has provisions that suspend the DMSP if a misalignment between U.S. and world prices arises that could disadvantage U.S. dairy exports.

IDFA Misrepresentation: “The reality is that farmers can have effective risk management tools without the government getting involved in limiting production.”

Fact: The only way to cap the costs under the Goodlatte-Scott approach is putting strict limits on how much milk can be insured for the five-year term of the Farm Bill. This negates the safety net effect of the insurance program, putting much more of the risk on the backs of farmers. Regarding the idea that the government will limit production, the study also clearly says that a farm’s production growth over the long term will not lag significantly under the DSA, compared to G-S. Remember that the DSA is an entirely voluntary program; no farmer is required to participate.

IDFA Misrepresentation: “DMSP is designed to enhance the price of milk by both reductions in the supply of milk shipped to market and through new government spending on dairy products with new funds collected by the USDA from commercial dairy markets.”

Fact: Again, the DMSP is designed to reduce farm milk price volatility and stem collapsing milk prices, not to enhance farm-level milk prices under normal market conditions when supply and demand are at normal levels. The DMSP stops the loss to farmers generated by prolonged low margin conditions, causing a quicker rebound in farm-level prices. This has the benefit of keeping down the costs to the taxpayer of the insurance program, and assures consumers a consistent supply of dairy products at more stable prices. The “new government spending on dairy products” is actually spending funds contributed by dairy farmers that would be used to buy dairy products for donation to the needy.

IDFA Distortion: “By having a more conservative subsidy on large-volume producers, Goodlatte-Scott would limit government liability.”

Fact: Since most of the milk in the U.S. is produced by farms larger than 200 cows, what “conservative subsidy” really means is that the G-S approach leaves vulnerable the vast majority of the nation’s milk production to margin volatility that is toxic to the health of the industry. Dairy farmers wishing to grow their production volume would face de facto supply controls under Goodlatte-Scott because they would not be able to insure any increased production for the five year life of the farm bill.

While the International Dairy Foods Association has trotted out a couple of small groups of large producers who support G-S, they fail to mention that members of their own organization support the DSA. Several dairy cooperative milk processors are members of IDFA and are supporters of DSA because they fully understand the need for stable milk prices to help protect farm families and grow milk consumption. IDFA’s approach will result in huge milk surpluses that guarantee processors access to cheap milk, costing taxpayers hundreds of millions of dollars and causing tremendous damage to dairy farm families. Maybe processors think that’s good policy. We believe it is a disaster.